Kia ora,

Welcome to Monday’s Economy Watch where we follow the economic events and trends that affect Aotearoa/New Zealand.

I'm David Chaston and this is the International edition from Interest.co.nz.

Today we lead with news China is still struggling to get its economic expansion back on track, while the US may be reporting an economic stall in some measures but their labour market suggests their expansion is still building.

First, Chinese industrial profits retreated in July from June, down -11.8% from year-ago levels for the month to just ¥623 bln. Year-to-date they are lower now too. This data comes from a national official survey of "large firms" with annual revenues of over NZ$5 mln from their main operations, so actually it really only avoids the smallest of companies. This isn't a surprising result given the headwinds they face. But the same official data shows that the liabilities these firms face grew more than +10% in the year to July. The pressure from those headwinds is building.

And they have an even more serious crop problem. While there has been some new rain in parts of the south, it isn't enough and it isn't hitting most key agricultural areas. It is hard to overstate the impact this is likely to have on their rice and vegetable crops generally. China is facing a tough food supply problem. More rain now is probably too late to save most damaged crops.

Food production is one thing, electricity production is another and China's southwest is doing it hard at present. And that is having consequences for EV owners - some now can't use public charging stations.

And in China's northeast, two more local banks are about to be declared bankrupt. They aren't the first. But national banks are moving in to shore up the situation.

In the US and in a short, blunt speech at Jackson Hole, Fed boss Powell reinforced the American central bank is very focused on getting inflation back to its policy range and will tolerate the 'pain' that may cause. He essentially said the choice they face is some short pain now, or much larger and long term pain if they leave the pressures unaddressed.

Now the battle against excessive inflation takes priority over the short term economic expansion. His speech is a good example of why monetary policy decisions have been handed to technocrat experts, rather than left to politicians.

But perhaps inflation is retreating somewhat. The US PCE measure fell in July from June, but from a year ago it is up +6.3% in July, but that is less than the +6.8% level recorded in June.

The same data shows the American consumption impulse easing fast. In fact incomes rose faster than expenditures in July, and only for the second month in the past 12 have we seen that.

American consumer sentiment improved in August, driven by the expectation that future prospects are brighter. But overall, sentiment is still lower than year-ago levels.

And in the week ahead, we will get two jobs reports for the US, both of which are expected to show that their labour market remains resilient. The latest non-farms payrolls consensus estimate is for +300,000 jobs in August, a similar pre-estimate analysts had for July, and one that was beaten handily on the upside. With just three days to go, there seems little to now affect August estimates.

In light of a still-booming jobs market, more observers are questioning the official GDP data that suggests the giant American economy has stalled or contracted. The two sets of data seem unlikely companions - one is probably wrong. And a stock market readjusting after a long period of 'yield' valuation gains isn't a persuasive measure either.

Still, the now rather fast build-up of inventories is a worry, even if it may have been 'necessary' in these times of difficult supply chains.

Staying in the US, the first estimates of the annual crop inspection tours show that the soybean harvest should yield normal results, but the corn harvest is likely to come in -4% lower than earlier official USDA estimates. As corn is their largest crop, this will have global implications. The corn price rose on the news and it had only recently come off its all-time high.

The UST 10yr yield starts today at 3.03% and little-changed from this time Saturday, and after Powell's speech. 

The price of gold will open today at US$1739/oz which is up a mere +US$1/oz from this time Saturday.

And oil prices start today at just under US$93/bbl in the US which is unchanged from Saturday, while the international Brent price is still just at US$99/bbl.

The Kiwi dollar will open today at 61.3 USc and a tad lower than this time Saturday. That is still its lowest since mid-July. Against the Australian dollar we are down at 89.1 AUc and a 5 year low. Against the euro we are down at 61.6 euro cents. That all means our TWI-5 starts today at 70.5 but that is quite similar to this time last week.

The bitcoin price is now at US$19,996 and down another -3.3% from this time Saturday. It is struggling to get back to US$20,000. Volatility over the past 24 hours has been low at just on +/- 0.8%.

You can find links to the articles mentioned today in our show notes.

And get more news affecting the economy in New Zealand from interest.co.nz.

Kia ora. I'm David Chaston and we’ll do this again tomorrow.